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Neoliberalism in a Few Paragraphs

On Facts and Other Stubborn Things, an anonymous commentator suggests that one topic Austrians tend to avoid is Neoliberalism. I do not think this is true; I think Austrians are some of the few free-market economists who are bold enough to declare neoliberal politics a failure. That being said, there is a clear distinction between what a neoliberal academic might suggest in theory and what policies government will actually pursue.

I’ll give an example that I have worked with recently. I had to do quite a bit of research into Nigerian corruption for a project on underdeveloped countries. Nigeria is a country that agreed to some “neoliberal” reforms: namely, they privatized the main energy resource of their nation — petroleum, and more recently, natural gas. What happened is that the government decided to sell drilling rights directly, pocketing most of the money earned. Income seeped into the pockets of different bureaucrats, and none of it went to the funding of local infrastructure. What this means is that the government did not use earned funds to build the basic infrastructure that a nascent Nigerian merchant class might use to distribute wealth more broadly across the Nigerian population.

The problem is that money loaned to the Nigerian government through the World Trade Organization and several foreign governments was not tightly tied to prerequisites of political liberalization. If they were on paper, any failure to comply with any requirements was not taken seriously — the petrol rights, I guess, are more important than true liberalization in Nigeria. The result has been a Nigeria with rampant corruption. This corruption can be roughly divided into two categories (naming is my own): “high” and “low (bureaucratic)”. High corruption is that which relates to things like the distribution of oil receipts and whatnot. Low corruption, or bureaucratic corruption, is that which deals with “every day” corruption amongst bureaucrats amongst all levels. This includes officials of the law (who enforce it) and the propensity to ignore it when the price is right.

The product is a lack of an enforced (i.e. effective) code of law, which leads to a lack of property rights; i.e. there is an unhealthy environment for local entrepreneurship, which has handicapped the development of a middle class. My point: “neoliberalism” in terms of broad privatization is not really neoliberalism, and cannot be confused as such. This is the Austrian take on neoliberal politics.

2 thoughts on “Neoliberalism in a Few Paragraphs”

Yes, I agree. A “privatization” can simply transform a public monopoly into a private one. In the meanwhile bureaucrats are able to capitalize rents in one shoot. Austrians are well aware of this and consider the so called Washington consensus just another kind of top-down approach to social issues. But do they have some sort of agenda? I mean something well structured to say about transitional policies. I read lots of paper about Eastern Europe and Russia. I found many interesting analyses. But what seems obvious with hindsight didn’t seem so obvious at the time. It seems to me that many clever Austrians have some difficulties in proposing second or third best solutions just because they involve some form of public intervention. As if they’re afraid to deal with something that has to do with the state. I don’t know but it’s possible that for a radical coping with the power even in order to set up a reformist agenda is “painful”.